Institutions are an important ingredient for economic growth. Using data from European regions for the period 1999-2013, this column shows that government quality matters for regional growth, and that relative improvements in the quality of government are a powerful driver of development. One-size-fits-all policies for lagging regions are not the solution. Government quality improvements are essential for low-growth regions, and in low-income regions, basic endowment shortages are still the main barrier to development.

Small and medium-sized firms can enjoy the benefits of trade liberalisation by exporting their goods or importing inputs through intermediaries. Using firm-level data from Japan, this column finds that firms in regional areas are smaller than those in metropolitan areas and are less likely to participate in indirect or direct trade. Direct and indirect exports and imports represent a large share of regional economies, and indirect exporters in regional areas are likely to become direct exporters. In addition, both newly started direct export/import firms and newly started indirect export/import firms tend to grow faster.

Germany shifts a massive amount of fiscal transfers across jurisdictions every year. This column argues that this limits the degree of economic disparities across regions, but comes at the cost of lower national productivity and output. Still, in terms of welfare, Germany would not be better off if all fiscal transfers were abolished.